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Extrapolating that frequency out means my next post after this one will likely be some time in late 2o18 but let’s go for it anyway – someone may get something useful out of it…

The most efficient evolutionary tool I’ve found (apart from failure in another area) has been attempting to become a trader. It’s ironic that my reasons for pursuing this goal were initially entirely material and definitely self-serving. NO altruistic or higher ideals whatsoever came into picking this as something I wanted to learn how to do.

I stepped onto this path solely with the intention to solve a bunch of internal issues with the external balm of huge amounts of cash. Obviously you’re setting yourself up for disappointment when most of the levers that govern success lie within and you can’t seem to look in the mirror…

Now I’m not going to flippantly end up concluding that ‘trading success is all psychology’ because that’s a throw away comment like saying ‘it’s just water’ to encompass every way in which water can exist on the planet. Which bit of psychology is key? What parts hold more weight? ‘It’s psychology’ is of literally f**k all use.

Here’s my suggestion and it’s best if you think about ‘learning to trade’ as if you’re about to pick up any challenging and difficult skill. There are only two requirements for success.

Practice doing the actual thing

The emotional resilience required to continue when it gets difficult (and it will)

If you’re trying to learn to trade and you find that you’re emotionally fragile, you’re going to have a bad time until you’re able to recognise this fact and do something about it.

As part of my response to the quote ‘trading is all about psychology’ I started meditating regularly – I kept that up for two years before it became a more infrequent pursuit. If you know anything about Vipassana practice you’ll know it allowed me to quieten my babbling thoughts and blessed me with a level of mental stability.

At this point though I stopped though because I didn’t know where to take it next. I’d got the bottom of most of my ‘issues’ and there was a degree of calm, happiness even. Foolishly I thought I was ‘done’.

However, that was two years ago and since then I’ve not been able to take my trading (and other pursuits) forward in a way I’d expect things to unfold… Why is that?

Recently I began to teach myself Javascript so I’ve been able to experience that with my previous forays in trading lending some pointers on ‘how to learn’. One interesting parallel leaps which forms the point of this post. I’ve hit the same roadblock with coding too…

In the first place it ‘looks’ simple but in point of fact it turns out the challenge, like trading, requires emotional strength and resilience to push through to where it makes sense and you can achieve a level of competence. Emotional resilience, it appears, is not something I’m particularly blessed with.

Seeing the glimmer of this point I was able to thread together a number of approaches to life and my behaviour where this trait has let me consistently let me down.

Not stepping out of my comfort zone

Compulsive/habitual reaction to emotional stress

Avoidance rather than addressing an issue

Unwillingness to fight my corner

It’s pretty interesting to realise that a major pivot is required in order to actually meet/overcome the barriers in your own mind.

Having used meditation and mindfulness to quell the intellectual chatter in my head I’m compelled to take the same route in exploring the boundaries of my emotional reactions to various things/events and situations. Observance, acceptance and letting things pass through is basically what I’m talking about here. While this quote relates to thoughts I’ve butchered it to address my challenge…

In meditation, leave your front and back doors open.

Let your thoughts emotions come and go; just don’t serve them tea.

Now that I’m intellectually aware of this challenge I can tackle it by:

Doing the thing, since this means building my emotional resilience

Not avoiding doing the thing

It took 2 years to sort my mind out but I suspect this may take longer.

Like this:

While doing anything with respect to trading has taken a back seat for me (erm… ya think?) I’m still mucking about in the background which led me to be in a webinar where someone asked a very interesting question…

Loosely paraphrased it was about ‘trading with (obtaining?) discipline’.

At the time I reflexively posted something in the chat and then immediately looked at what I’d written and thought ‘Woah, I’m coming across as a real dick there’. So, partly to avoid perpetuating that image (that I’m a dick) here is my expanded explanation about what ‘discipline’ is and isn’t.

Note: Of course I may still come across as a dick after this post is published – them’s the breaks.

I used to believe (wrongly) that Discipline (capital D) was something you had or you did not have. Certainly I had zero amounts of this quality and so it was far easier to sit on my arse with that excuse intact and framed on the mantle piece. Go me! #irony

In some respects I’m mortified to finally (at age 43) realise that discipline isn’t the preserve of some higher species or group to which I will never belong. It worries me that somehow ‘the kids’ don’t know about this perspective and still think qualities like this are somehow innate or handed out at birth. As far as I can tell what’s most commonly handed out at birth is a smack on the butt…

Anyway… How to go about being disciplined is not some mad voodoo ritual where you squeeze your eyes together and click your red slippers together (there’s no place like home… oh wait… wrong movie)… It’s entirely the opposite of using your very meagre energy or brain power.

You cultivate discipline (or any habit) by doing the same thing over and over again. Essentially you make a promise to yourself about a thing and then make sure you do not break that promise. Then you do it again, then again and again until it’s not even a thing anymore. It becomes something you do… like breathing or brushing your teeth.

The act of exercising self discipline builds the muscle to build more discipline and further strengthens your self control (another name for discipline I guess). To completely steal from earlier philosophers (Aristotle?) obtaining a quality is like learning a skill – you have to practice it in order to obtain it.

Logically it follows that it’s counter-productive to have iron discipline (good habits) in one area of life or conduct but be entirely crap at keeping it together elsewhere e.g. diet or exercise and so on, If you are trying to put your mind into a place where it’s uncomfortable (trading) and most of your time is spent being indisciplined then by default you’re going to fall out of bed and do something dumb.

Exercising discipline when you are doing something new that you have not yet ‘habituated’ yourself to do by practising it over and over again is ridiculously challenging. Cultivating discipline in a new area takes TIME because creating the repeated experiences of ‘doing the right thing’ takes energy and right action over time. Especially in the beginning where you’re unlikely to be winning (or just getting killed) it’s challenging to practice for little or no positive feedback.

Something else to highlight is that it’s far easier to change your view of yourself about having discipline if it applies to ALL areas of your life. After all you’re trying to change/morph into someone who has the characteristic of ‘having discipline’ so this is pretty much an all or nothing state. The more areas where you do posses this quality the more likely you will be able to bring it to other (new and challenging) realms.

This means doing the hard stuff. Practising the boring stuff around learning a new skill, going to the gym, not eating snacks/junk and going to bed at a reasonable time. Discipline could be tagged as the master key for an interesting and fulfilling life. If you can cultivate it then you may achieve great things. If you struggle then failing is not an option – it just requires more practice and a focus on keeping the promises you make to yourself.

Here’s a practical example. Today I went to the gym to do squats. At the end of the day I did not want to go but I had promised myself yesterday that I would go. So I went and it was hard.

Then I came home and studied more ‘Ruby on Rails’ when I also would have preferred to watch iPlayer or Eddie Izzard on Youtube. I did what I said I would do.

However I now have some more ‘self discipline experiences’ and that part of my brain where I can keep a promised to myself will eventually eclipse the ‘sit on your butt and kid yourself that everything is great’ part. That amount of delusional thinking takes up too much energy.

Keep practising until you have INSURMOUNTABLE EVIDENCE that you have discipline and you’ll find it easier to resist temptation in the heat of the moment because you know you’re not the sort of person who breaks their promises (trading rules) to themselves.

Like this:

I started to think there could be a downside to my rather monastic approach to trading based simply on the fact that listening to the voices in my head isn’t particularly productive. I posted something on this before but then struggled to execute anything on it since I didn’t see a way of making it work technically

As I’m currently working in an office the social part of the job is actually quite good fun and so parking off in splendid isolation has started to feel somewhat uncomfortable. Having people around also lends itself to accountability and since I’ve a slightly lazy disposition accountability is actually useful for me.

A longer term ambition actually includes taking the ‘online’ model associated with other businesses described in books like ‘The Year without Pants’ (about WordPress), ‘Rework’ (about Basecamp) and ‘Lean Startup’ (about Bootstrapping web startups) to apply them to trading or a group of traders.

I’ve spent some time in/around/with various groups and trading collectives and my impression is that the ‘community’ of traders that are active seems to be quite small here in Europe/UK. Of course America is bonkers and timezones present some challenges so I’m going to expound on ideas mainly focused on UK/EU and related regions.

One very clear conclusion I’ve come to already.

Text only chat like forums, blog posts and even what’s provided in Tradingview’s chat (there’s quite a lot of features here) isn’t good enough for the purpose and open to way too much abuse. Typing anything you like (and trolling) is very easy and without penalty whereas verbalizing abuse or making trolling type remarks aloud is a completely different proposition. There’s a self policing element here ’cause you immediately sound like a whiny six year old when you open your mouth.

So what are my technical criteria?

Voice based

Everyone can talk/contribute

Free

Text is too slow and as I’ve pointed out above – open to too much anarchy. There’s a social barrier to verbal abuse that’s a great leveler. If lots of people hear someone getting picked on there’s generally a move to even up the debate or at least calm it down without some sort of ‘moderator’ class having to exert the ban hammer – which is a form of escalation/bullying in its own right.

Everyone should have the ability to contribute/talk and ask questions. This is really how a community builds, evolves and ultimately sustains itself. I’ve been in a few environments where it’s effectively one person’s show and I’d suggest that eventually these will all die out sooner or later. The ‘guru’ model works for teaching but not really in a live, fast moving environment – it also turns the whole experience into a TV like ‘passive’ experience for those in the room. They feel like they’re involved in something but unless they take the reigns they’re really not. It just becomes entertainment

Since I’m proposing everyone has the ability to contribute the subscription model has to die.

Charging anything from £50 to £100 per month for what amounts to maybe 30 minutes of useful/actionable information per day is somewhat ludicrous. All the rest is mostly banter, fucking about and existential arguments. Raise the bar by dumping the entry price sounds counter-intuitive but I think it would encourage more engagement since participants would be vested in having the community succeed overall.

More important than the technical side is the ‘social’ rules and norms required.

Common beliefs / trading approach

Invite and moderation by consensus

Active participation is encouraged

Anonymity

It’s very hard to hold a group together without a common reference point. With traders it would need to be driven by a consensus around how to ‘see/trade’ the market otherwise there’s a fairly large risk of a decent into ‘who’s methodology is best’ type arguing. If you want to get into that dead-end then go back to TradingView’s text chat and fill yer boots

Invitation/moderation by consensus basically means its not open to everyone who sticks their head in the door automatically. Unless all participants are operating at a more evolved level than the vast majority of the internet (unlikely) then some checks and balances are inevitable. That said a light touch approach should be entirely possible.

Active participation is something that can be artificially encouraged but is mainly on the shoulders of individual members. If no-one speaks up then it’s going to get very boring very quickly. There should be no free lunch if (as I’ve seen elsewhere) where 10% of participants consistently carry the whole venture. Everyone should be happy to throw ideas into the mix and this really depends on the culture driven by the members. No-one wants to add to a debate where they’re worried about getting chewed up.

Anonymity as a requirement is something I’ve struggled with. I haven’t got any issues with this myself but what I have seen is that unless it’s a feature you don’t get the critical mass of participants required for the effort to be self sustaining. There’s no way around this at the moment and this is why some of the tools available aren’t acceptable.

So there are some tools out there but you can quickly rule most of them out: –

Skype – no anonymity, not scale-able enough, people don’t engage with it enough since it’s linked into their other (non trading) activity. It seems to be too ‘personal’

Google+ no anonymity, not scale-able with voice, screen share resolution is pants, no participant controls, limited time allowed, someone has to initiate an ‘event’ and Google+ text posts are so bloody hard to use/search and curate in any functional way I just want to shout at the screen…

Omnovia, GoToMeeting, Webex – seriously too costly, one presenter only, not collaborative, why do you actually need live screen share? (I’ll come back to this point)

Slack – what GoogleWave tried to be (and failed) and it’s quite ‘real time’ but hasn’t any VOIP functionality so… what’s the point?

What have I seen work?

You’ll laugh but the tool I’ve seen which meets these requirements is…

Teamspeak 3

Yes, that geeky gamer VOIP app from MMORPG’s actually fulfills all these requirements very well indeed. Since you’re not in the business of selling on goods/services the annual server cost is zero for less than 32 participants. You could still scale this up and not have to worry about paying for more users either – although I’m still trying to get my head around how their licensing works.

I’ve seen this work very well off the back of the Bitcoin trading community which has effectively splintered from TradingView. Finally, I mentioned live screen sharing above so here’s two reasons why I don’t think it’s mandatory.

Someone else’s screen is just a massive distraction – it’s no telly, ok? Rather concentrate on your own view of the world and your own trades/analysis and then share them with a link to something visual. The internet is drowning in free screen-capture clients😉

If it’s a trade idea it should be communicable in a static chart. If you have to explain it live then break off and use something else temporarily if you have to.

I don’t think live screen sharing is a requirement for day-to-day operation (teaching, yes but I’m not addressing that) so there you go. This is what I personally think works, what doesn’t work and how I suggest people go about it if they’re interested.

Pin-ball ricocheting through the trading universe of gurus, systems, literature and hype I’ve been repeatedly irritated by everyone’s inability to define two persistent concepts. You’ll hear these tropes over and over…

You need an edge

Trading is 90% psychology

Well thanks you great and ponderous genii but what in heavens name do you actually mean?!?! You may as well be describing clouds to a fish for all the good knowing this will do.

Did I mention this ‘godlike pronouncement from on high’ nonsense irritates me? Oh and by the way, the definitions (when they do appear) don’t necessarily agree with each other. Brilliant eh? #facepalm

I’m feeling quite combative so in this post I will be sticking my neck way out there and proposing some proper definitions.

Let’s take a step back and roll out a big concept… To trade successfully you basically need these three things squared away.

Risk

Don’t risk more than you can afford to in each trade. Don’t trade an amount that has a negative impact on your ability to manage the trade or think rationally. If I have to explain to you why this is important we’re basically in deep s**t already.

A large part of the issue around risk seems to be un-realistic expectations which I’ve addressed elsewhere. Summary? Don’t trade like you know what you’re doing. This can be fatal. I will re-visit this in detail in another post and try to remember to post the link back here.

Edge

You have an edge if the trades you take over a statistically relevant period of time have a net positive expectancy. In other words… How you trade needs to make money over weeks, months and years. Your indicator diarrhea based, extensively back-tested blah-blah-blah is of no use if the execution is appalling. Does how you execute, manage and evolve as a trader net you profit over time?

Hand wringing about how you detail or characterise your ‘edge’ is pretty much a waste of time because all you need to know is whether you have one or not. To do this all you can do is look at your results.

If you make money then you have an edge. It is likely that this is the result of a ridiculous amount of study, losses, perseverance, pain, irritation, despair etc. then at some point this becomes familiarity, belief, success, euphoria, process orientation and ultimately boredom.

You should then be able to show/teach another person how you trade. You really know how to do something when you can teach it to someone else so clearly they can pass it on successfully to a third party you’ve never met.

At this point the student/teacher process breaks partly due to issues around risk but mainly because of the third leg of the stool…

Psychology Arousal Control

We make crappy decisions under conditions of emotional arousal or stress. Putting your wang in some random ’cause you’re horny and then giving your girlfriend an STD is an example of arousal leading to making a crap decision.

I’ve crossed out psychology and labelled it ‘arousal control’ because (again) no-one really relates to what ‘psychology’ as a word means in this context. Hopefully everyone has experienced what arousal is at one point or another but please don’t send me emails with examples. Thanks.

Arousal is when our focus narrows and our rational decision making goes completely out of the window. It’s when our monkey brain starts screaming like something trapped in a cage from 28 Days Later. It’s gibbering and throwing poop. Monkey mind needs to STFU because: –

If you manage your risk

as well as having a trading process that is statistically profitable over time

with a mind this is in an un-aroused state

then with these three things in line you have every chance of taking money out of the market in the form profits. With just one of these legs missing your stool will fall over.

So here’s the point of this post.

I used to be worried about my psychology with respect to trading and it would drive me nuts ’cause it’s such a huge topic. You read about it literally everywhere with trading, psychology, psychology, psychology AAAAARGH… I had literally no idea where to begin ‘sorting out my psychology’ and found this very demotivating.

Apologies in advance if the next part comes across as somewhat glib cause you’re not there just yet. It’ll take practice but what I’m going to suggest is very do-able I’m not special in this regard.

If you want to sort out your ‘psychology’ with respect to trading then you need to concentrate on removing the aspect of your response which leads you to make mistakes. It’s okay to have emotions, just not emotions that lead to you to make bad decisions. Even asking yourself simple questions when you are about to make a trading decision can have a huge impact at each stage. Take the arousal out of the equation by whatever means works for you.

The emotional part of your brain (when aroused) is a terrible trader so you need to practice managing it when engaged in this activity. This is why gurus and the trading literature keep banging on about following rules. Ironically having rules and being discretionary cannot logically fit into the same box – hence discretionary trading is hard to teach.

Having been able to observe what I do/did and then dial back the monkey/arousal part of my brain when I see it kicking in means you’re now seriously tipping the odds in your favour.

How have I managed to actually do this?

You can’t change a behavior till you know it from every angle in order to combat it. It will seek to continue doing it’s job because there is a reason for it’s existence – just unfortunately when trading it’s not useful.

The job of this part of the brain is to hyper focus in case of danger or ’cause you’re going to have to fight someone else for the chance to mate. Your job is to trick this part of your brain to back off so your more rational/experienced/conscious and process driven thinking can help you make the most of the dice roll trade.

Which is where the other two legs come back in. If your risk isn’t in control this is very hard to do. If you haven’t got a clue how/why your trades make money then quieting the monkey will be extremely difficult if not impossible. Let’s assume you’ve got these two parts sorted though… What else can you do to help re-frame what you’re doing?

Rinse as much emotion as possible out of the event you’re engaged in. What happens next must have absolutely no bearing or impact on your life, self esteem, emotions, hopes, fears or dreams. Win/loss or whatever means nothing. Consciously think about this when looking at getting into or managing a position. Breath deeper if you need to.

Really treat this experience as an opportunity to learn more – especially at a physiological level. With practice you can observe/feel your mind and it’s almost like trying not to go over the edge (ahem… you know what I mean). If you going to make a knee-jerk reaction based on your mind running about then STOP and don’t do anything till you’re sure you are going on something you can justify – a proper REASON has to exist for you to take action

Do not engage in the mental gymnastics associated with chains of events. You may have taken three losers (or winners!) in a row. Taking or managing this trade has completely bugger all relationship to anything that went before. Don’t fall into this trap. Events that follow each other are NOT correlated at all in any way. I can’t overstate how important this is.

Do not look at your P&L – if you want to mess yourself up emotionally by 200% then feel free to do this. This is partly related to point 3 above of course. You’re involved in a one off single and unique event – stop dreaming about the Ferrari

Breathing – like any stressful event just breathing and being an observer is a very effective way to ‘step back’ from what you’re looking at. In the end though (like everything) it takes practice over and over again. Keep practicing keeping your mind in check.

Having finally realised this I’ve stopped worrying about my ‘psychology’ and have been focusing on dialing back my emotional knee-jerk reactions when executing and managing trades. This has meant I’ve actually been looking at what’s happening, following my rules (edge), managing risk and taking the emotion out of each event.

In some ways the fact I’ve previously meditated regularly and still do this (not as often as I should) gives me an advantage because I can usually take a few breaths and step back from the ‘omfg it’s going against me I’m a terrible human being I’m never going to make it why did I get into this position what am I doing with my life‘ insanity. After all, it’s only a trade and I didn’t bet my house/car/self-esteem on it.

Practice taking a step back, looking objectively at the trade as a single, un-correlated event and things begin to sort themselves out. Practice this 100 times and it begins to be less of an issue.

Update: +22 | +2 | -2 | +0 | +24 | -10 | – 8 | +10

My particular problem right now? I’ve not had enough practice doing this when my trades are in the green ’cause that last one should have been +30😉

It seems my post title’s need work since I may as well call this one ‘blah, blah, blah, blah, blah.’ but let’s go with it anyway… I’ve long stopped being concerned about turning this blog into a ‘thing’ since I write here to help clarify my own thoughts rather than add more noise to the signal.

As an aside I went through ‘wordpress’ list of ‘blogs I follow and ended up deleting 60% of the entriest since most people who were active 1-2 years ago seem to have stopped writing.

My own post frequency has died on it’s arse since I’m focusing on doing rather than writing about stuff and then NOT doing anything. It seems every time I come back to WordPress they’ve also changed the UI… shows you how big these gaps are becoming.

However I felt beholden to recommend the following book (not a trading book) and make an additional observation since it might help someone out there. Off we go…

Struggling with placing trades

So here’s the thing… I’m sure I’ve written about this whole topic before. I have a few persistent behaviors I get into when looking at placing trades. Some or all of these may occur: –

I look for confirmation of my idea by other traders

Manage to talk myself out of placing the trade at all

Get scared off by the big red/green candle and don’t do anything

Issue number 1 is simple to fix. Don’t canvas other people’s opinions or spend too much time worrying about everyone else. Since it really has to come down to me in the end the opinions or others are essentially meaningless.

Issue numbers 2 and 3 are allied to that basic human emotion of fear. That part of your brain which has been programmed since time immemorial to stop you taking risks. Since science-fiction like reprogramming options aren’t available it means the only option is to re-frame the conscious decision making process around the circumstances of placing the trade.

So on to the serendipitous solution where I ran smack into The Obstacle is the Way by Ryan Holiday. Which can be summarised as follows…

The one thing you must do is, by definition, outside of your comfort zone. Avoiding or hoping for the perfect circumstances before proceeding is foolish and delusional. The obstacle lies in the path which must be taken since victory doesn’t come from fleeing from the battlefield.

The book describes how seeking comfort or ‘ease’ is actually robbing us of our capacity to evolve and experience new things. Taking on the experiences that scare us knowing that these are the exact things we must become familiar with is immensely powerful psychologically. I’ll prove this point with my own experiences later on.

Struggling with change in general

I am not happy with certain aspects of my life. There are characteristics, habits and behaviors I have which I don’t actually like very much.

I eat chocolate when I’m stressed at work and don’t sleep for long enough

I don’t eat particularly healthily anyway which compromises my time in the gym

I waste a lot of time consuming media (films/games) instead of creating (I love to write) or spending time learning new skills

The list goes on…

and more…

While this intersects with some of the ‘avoidance’ behavior of my lizard brain not wanting to expose itself to change/risk/the unknown I heard something the other day which literally scared the crap out of me.

There is no future version of yourself. The person you are now is the person you will be in the future.

I had recently spent some time getting my head around the fact that if I actually did want to have a different life then the person I’d have to be would have to be significantly different… and then… nothing happened. Once I heard this phrase the reason became very clear.

I hadn’t been making the effort to change my habits in the present because some ‘amazing future version of me’ would have it all nailed down and it would happen ‘in the future’. In the meantime what I had was an amazing way of excusing myself for my lack of effort, focus and will-power.

All of my less than optimal habits associated with how I use my time, pursuing my goals around trading, diet and fitness have been deferred to this amazing future me.

The ‘future version of me’ will never ever appear unless I focus on changing the only version of me that actually exists. The person I am now – in this moment

So I am in the process of continually reminding myself the ‘future me’ (who I have dearly loved and cherished for many years) has to die. I’ve never been one for reminiscing about the past – as anyone who has encountered my shocking memory will know – but I’ve previously held on very tightly to ‘someday’.

It appears this is not a profitable belief so it’s going to get crushed.

Ah yes, taking on experiences that ‘scare’ us

There’s a lot more behind this which I’ll go through in another post but by accepting the obstacle as part of the path I’ve actually had these results +22 | +2 | -2 | +0 | +24

I know 5 trades don’t make a track record (at all) but these are the ones I’ve taken within this new mental framework. Way less mental pressure and actual emotional distance from the whole experience. I might even say ‘fun’😀

Feel like I’ve crawled across the scorching desert, through a swamp and finally blown the dust off a long buried book of magical spells to update this blog. Apologies in advance since this isn’t likely to be short… Previous update was what? Mid-way through last year >6 months ago?

Still, as I’m struggling to get to grips with the fact WordPress has also mutated, it’s worth having a bit of a review of ‘the journey so far’ for anyone picking this up from scratch.

All the funny/scary/horrendous stuff is back in entries from 2011-12 so if you want to hurl rocks or pooh start back there… mm’kay?

Most of what’s below was written in response to a notable trading person asking a really simple question… ‘How is your trading going?’ Seems innocent enough, right? Little did the poor soul know he’d receive a 8+ page response…

I also sent this to Steve at NoBrainerTrades who is also a bit of a legend. All you Price Action junkies go there and get some sanity. Really good comments/feedback I’ll update inline.

There’s several sections in here… If I was a bit smarter I’d I’ll try to split this up a bit…

The story so far… I had this great idea…

I started looking at trading for all the wrong reasons, chiefly to solve the external problem of not having enough money to meet my commitments and radically change my financial circumstances. Little did I realize when I started what a huge personal challenge this would be and the number of blind alleys I would end up running down. It seems I had have a lot of ‘stuff’ to resolve and every one of these problems made up a barrier which I have had work through to the get to the point I’ve reached now.

The silver lining in all of this has been without trading as an engine for change I doubt there would have been anything to really compel me to evolve as a person. Thanks to this pursuit I began meditating which has (on it’s own) transformed my outlook on people and life in general.

This isn’t to say I’m anywhere near ‘done’ but I’m no longer a danger to myself (in trading) and have a proper appreciation of the process I still need to go through to become a consistently profitable trader.

Working full time as a project manager does not really allow me the time to sit in front of the live market. At the moment I focus on replaying historical price moves and using these observations to further reinforce what I have been taught.

So here follows a brief history recap, some s**t I’ve noticed and what’s currently occurring.

Year 1 (Trading is Tic-Tac-Toe)

I probably spent >9 months going in exactly the wrong direction and also bought into some ‘education’ which (it later became clear) was essentially a money making scheme for the vendor. The UK trading education market is woeful and centres around spread-betting as a ‘get rich quick’ scheme without there being anything like realistic expectations. An advantage here however is that profits from spread-betting are tax free. Still this is of no comfort if you keep getting carted every day.

So in short, no methodology, no understanding, no edge and a significant lack of any sort of process. Add in indicator madness/the search for the holy grail as well as me being convinced (at this point) of my own godlike intelligence or superiority and you’ve got a recipe for unmitigated disaster.

Happily I wasn’t in a position to damage myself too badly financially – apart from getting completely ripped off by aforementioned ‘training’

Year 2 (Trading is Checkers)

Moved to ‘somewhat’ acknowledge that possibly I wasn’t as smart as I thought I was and so undertook some low level studying without really having enough knowledge to structure it properly. Started to understand that my own psychology wasn’t helping me at all in my approach to the market and begun meditating on a daily basis. I still meditate every day because of the ridiculously positive effect it’s had on my life.

Was exposed to some proper traders who made it very clear that my approach was woefully inadequate and underpinned by zero knowledge. Still not really sure what I’m looking for on a chart though and unable to hold back from impulsive trading i.e. not thinking through something before hitting the buttons. Favourite approach this year? Trying to fade one way moves without an adequate understanding of why it didn’t work.

Just enough knowledge to be dangerous and overconfident but still safe due to not willing to over-commit without being consistent. Self aware enough to know that consistent isn’t on my list of trading traits at this point.

Winning consists of luck at this point and massively compromised by the fear of missing out approach

Year 3 (Trading is Chess, against yourself)

Finally hooked up with some proper education (Chris Lori) in someone who was able to teach me how to ‘see’ the market and explain what’s actually happening. We’re not in Kansas anymore.

That combined with being exposed to other real traders ideas (Tom Piccin in the UK, Anthony Drager and Mike Bellafiore’s ‘The Playbook’ and the NBT site) plus books like ‘Bounce’ and ‘Mindset’ I actually started to define the process of how to improve without cutting my own throat. More on this below.

By now I’m more interested in becoming ridiculously proficient at this craft (the journey) as opposed to fixing the external issues by some sort of force of will. Still, having learn to play chess there’s a difference between being able to play and being a master… You only get good by playing lots of games within a proper learning structure.

Year 4 (The present moment)

So at this point I’ve defined a feedback model for myself as a way of structurally driving that improvement – this is outlined below

All through the time above I’ve spent looking at FX majors since it’s actually easier to keep tabs on a half dozen of these and the associated macro drivers than attempting to capture/filter stocks/futures price moves without a significant amount of automatic filtering.

This year will be spent building my experience via historical data and continuing to add to my database/diary of trade setups. I’ve built this using Filemaker Pro because you can capture images (charts) and the context of a move rather than trying to fit this into excel or something that it’s difficult to search within…

So with the trade/research dB I need a vastly larger sample size than I’ve currently got but I’ll give you an example of how it’s useful.

The human memory is faulty and suffers from a number of biases. You discount information you don’t like and pay more attention to things that back up a thesis. Just ask any researcher – this is the reason that academic papers require peer review.

I’ve looked at three trades in the last two weeks where I’ve spotted a good level that (imho) should produce a tradeable reaction. Each time the reversal has been front run by 4-5 pips and I’ve not got my fill. Not having a record of these types of events how am I ever going to notice this stuff of improve? My next trade I will know in advance that I need to position my limit +4 above or below what I consider to be the entry point.

Knowing and getting comfortable with this in advance makes all the difference as far as trade management is concerned. This adjustment becomes a reaction to observed market conditions rather than a knee-jerk response to something I may only have a feeling for.

Other Things I’ve learned

The more often a level is tested the weaker it gets, not stronger.

Depending on the price action prior if a level has been tested multiple times it’s more likely to fold than hold. Books, educators and many traders seem to be bought in to the idea that the more often a level is tested the more the ‘market’ will respect it. Does the door get stronger as the SWAT team is bashing it down? Nope…

Emotional Capital in trading is as important as actual capital (well for me anyway)

In fact it may be more important. If you get carted and scared the amount in your trading account and your ability to bounce back will suffer if your emotional capital/resilience is in short supply. I am dealing with this at the moment.

Prediction is for pundits and listening to (99%) of analysts is a waste of time

Having an opinion as to where USDJPY might be in 6 months is all well and fine but it needs to be underpinned by fundamentals data, caveated by possible shifts in central bank monetary policy and not a chart.

Kathy Lien’s FX market commentary is however worth it’s weight in gold if only because she clearly communicates what everyone is looking at. Kathy = legend

Patience. Do not chase price

If you missed the move at the point you wanted to get in then leave it. The bus may reverse back onto you if you chase it down the road. The reason for this is outlined below. Patience also gets you better entries.

The faster/farther price extends the weaker the move becomes, not stronger

Like a water jet the force of the move exists at the base (origin) and not 200 pips above where it broke out from.

As price extends up looking for counterparties this has an effect on orders in the market ahead of or around it and liquidity withdraws away from the spike. What happens next depends primarily on what the price driver actually was and whether you can do anything with this comes down to whether you understand the consequences in a wider context.

Price moves as a function of liquidity

I underlined this one since it’s come to underpin all my trading decisions. If I don’t understand what I’m looking at in the context of this statement then I’m not going to trade it. Thanks to Chris Lori for the lightbulb moment where I finally got this concept

I appreciate that an FX feed doesn’t contain volume data but having spent 2-3 years looking at EURUSD charts I’ve a fairly good appreciation of what/where on a chart there will be a tradeable level based on previous price movements.

Your time-frame is irrelevant (Oooh… Controversial…)

I’ve come to believe that people over-think the issue of time-frames in trading. People will say ‘oh, I only use H1 charts’ because M5 charts are all noise… Wow, really? Just think about that for a minute. Are computer models and algo’s concerned with how we humans have represented price data? What about a M24 chart? Is this more valid than an M30 chart?

The only question is this… What price is optimal to allow me to enter with a high probability that subsequently allows me to reduce my exposure to risk? After that it’s down to trade management and looking at M5 or M1 charts can really tell you a lot about where a ‘safe’ area is when moving stops.

Last one…

You are not trading the market. You are trading the traders who are trading the market

This is somewhat esoteric but this view of the market fits into my worldview nicely so I’ll include it here.

Since we’re all individuals it’s logical that we each have a perception of the world and our experience of it that is unique. No two experiences of life are the same just as no two trades or traders are the same.

We each view what unfolds through the prism of our experience, upbringing, teaching etc. and as with life so with looking at the market. This is where we have to start seeing what’s occurring from the perspective of probabilities and psychology rather than certainty and right/wrong.

If the price gets to point ‘x’ then the probability based on the psychology of the participants indicates that a reaction in a given direction is more likely and the result may well be a trade that wins for you as an individual.

This is a level of abstraction above what or how most people believe the world works let alone applying it to something else. The market doesn’t care about right or wrong in any regard since it’s only there to facilitate trade… You got your fill? Then the market did it’s job. Whatever happens next isn’t it’s concern at all

This view can be extremely useful when looking at a level that ‘everyone’ on twitter or squawk is anticipating will break. Back in October Goldman Sachs published a trade recommendation (which was made public) that called for USDJPY to break 97. This didn’t happen and we’re now banging on 106.

It really comes down to the fact that when the majority of participants expect ‘x’ and it doesn’t happen (e.g. taper as another example) then the reaction will be outsized in the other direction. Disappointment and the fear of being wrong create outsized moves.

Another way of using this is to look at a chart and ask the following question…

‘Where is everyone going to be wrong?’ Go search for Anthony Drager (ref: Market Delta) on this topic and sign up to some of his webinars – he really explains this a lot better than me.

And so to the future…

I’ve come to appreciate more and more what this pursuit of trading has done for me as a vehicle for self development. With this in mind and the structure (database) I’ve created the near term consists of looking at the markets when I have the opportunity, creating ideas and then seeing to what extent those ideas play out

Things to focus on in 2014: –

Execution – I am still not ‘comfortable’ putting on positions

Patience – especially holding on to positions longer

Trade management

More screen time

Resilience

Currently I don’t have the financial cushion to switch from my job to doing this full time and without something approaching consistent profitability that would indeed be foolish. It is a bit of a chicken and egg situation.

A very optimistic timeline would be 18 months before anyone sees significant progress here so don’t all get carried away now. Thanks for reading.

This trade was based on a lack of large sell orders at this point of the day. Price basically bleeding up following a serious gap down over Sunday night. The logic goes like this…

If you have a large sell position to execute you’re simply not going to drop this into the market on the wee hours of Monday morning after the pair has already dumped 100+ points

(Usually)

If you read ‘Markets in Profile’ or anything on auction market theory this will make perfect sense. Price auctions up looking for sellers and after a drop like this there are no sellers down here😉

So there’s a (qualified) good chance that price will get back up to somewhere close to the top of the gap before the buy liquidity is available to mean this type of size actually gets executed… right? Right!

Apart from the error I made which I’ve pointed out on the chart (trailing my stop too aggressively on/around my first target) I also could have waited for a better entry price.

I actually remember thinking ‘I want 0.9396 to buy this’ but then I decided not to wait and plumped for 0.9403 instead. The reason I mention this is that waiting could have meant I’d have been less jumpy with my stop and held the trade for longer.

This is all highly speculative of course but before anyone asks this was a +24 winner although yes, there was another +20 in there which I missed at one/both ends.